2023 (1) TMI 8 - AT - Income Tax

Upward adjustment on account of sales made to the associated enterprises - CIT-A has deleted the upward adjustment made by the TPO/AO after making the reference to the order of the ITAT as discussed above in the earlier years - HELD THAT - As no material has been placed on record by the ld. DR to demonstrate that the decisions of Tribunal that were followed by the Ld.CIT(A) while dismissing the appeals of Revenue have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. In view of the above, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. Addition of marketing commission expenses which was taken as nil - CIT-A deleted the addition - HELD THAT - DR to demonstrate that the decisions of Tribunal that were followed by the Ld.CIT(A) while dismissing the appeals of Revenue have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. In view of the above, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. Addition of excess depreciation claimed by the assessee - AO during the assessment proceedings found that the assessee was given reimbursement of capital expenses in the earlier years but the assessee has not reduced the same from the cost of the plant and machineries - CIT-A deleted the addition - HELD THAT - Before us, no material has been placed on record by the ld. DR to demonstrate that the decisions of Tribunal that were followed by the Ld.CIT(A) while dismissing the appeals of Revenue have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. In view of the above, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed.

Issues Involved:
1. Deletion of upward adjustment of ?1,26,30,767/- made by the TPO.
2. Rejection of the TPO’s approach of adopting the CUP method as MAM.
3. Allowing TNMM over CUP method.
4. Allowing adjustments for differences in business volumes, marketing and selling expenses, credit risk, and interest-free ECB loan.
5. Allowing adjustments of saving in selling and marketing costs.
6. Considering the transaction of sale of TEAL Chemical to Reliance Industries Ltd. as comparable uncontrolled transactions.
7. Rejection of TPO’s approach of price comparison in foreign currency.
8. Allowing benefit of ALP price range of +/- 5%.
9. Deletion of adjustment of ?1,76,49,394/- on account of benchmarking of sales promotion and marketing services.
10. Ignoring the assessee’s failure to benchmark transactions with AE as per law.
11. Allowing aggregation of transactions.
12. Deletion of addition of ?11,17,079/- towards excess depreciation claimed.

Detailed Analysis:

1. Deletion of Upward Adjustment of ?1,26,30,767/-:
The Revenue contended that the CIT(A) erred in deleting the upward adjustment made by the AO/TPO. The assessee had aggregated different chemical transactions for determining the ALP, using the internal TNMM with PLI as return on total cost. The TPO rejected this, adopting the CUP method instead. The CIT(A) deleted the adjustment based on ITAT’s previous decisions for AY 2009-10 and 2010-11, which favored the use of TNMM over CUP. The Tribunal upheld CIT(A)'s decision, finding no distinguishing features in the current year's facts compared to earlier years.

2. Rejection of TPO’s Approach of Adopting CUP Method:
The TPO’s adoption of CUP method was rejected by the CIT(A), who favored TNMM as the most appropriate method, supported by ITAT’s earlier rulings. The Tribunal agreed, emphasizing that the CUP method was not suitable due to the inability to make accurate adjustments for differences in economic circumstances and contractual terms between AE and non-AE transactions.

3. Allowing TNMM over CUP Method:
The CIT(A) allowed TNMM over CUP method, as supported by ITAT’s decisions in earlier years, which were found to be binding. The Tribunal reiterated that TNMM was the most appropriate method for determining the ALP of the transactions in question.

4. Allowing Adjustments for Differences:
The CIT(A) allowed adjustments for business volume differences, marketing and selling expenses, credit risk, and interest-free ECB loan, which the TPO had disallowed. The Tribunal upheld this, noting the significant variations in economic circumstances and contractual terms between AE and non-AE transactions.

5. Allowing Adjustments of Saving in Selling and Marketing Costs:
The CIT(A) allowed adjustments for savings in selling and marketing costs, which was contrary to the TPO’s approach. The Tribunal supported CIT(A)’s decision, emphasizing the need to account for differences in economic circumstances.

6. Considering Sale of TEAL Chemical to Reliance Industries Ltd. as Comparable:
The CIT(A) considered the sale of TEAL Chemical to Reliance Industries Ltd. as comparable uncontrolled transactions. The Tribunal upheld this, noting that the facts were consistent with earlier years where similar adjustments were allowed.

7. Rejection of TPO’s Approach of Price Comparison in Foreign Currency:
The CIT(A) rejected the TPO’s approach of comparing prices in foreign currency, which ignored the impact of currency conversion rates. The Tribunal agreed, finding the CIT(A)’s decision consistent with ITAT’s earlier rulings.

8. Allowing Benefit of ALP Price Range of +/- 5%:
The CIT(A) allowed the benefit of ALP price range of +/- 5%, which the TPO had denied. The Tribunal upheld this, aligning with previous decisions that supported such adjustments.

9. Deletion of Adjustment of ?1,76,49,394/-:
The CIT(A) deleted the adjustment for marketing commission expenses, which the TPO had benchmarked at nil. The Tribunal agreed, referencing ITAT’s earlier decisions that found such adjustments unjustified.

10. Ignoring Assessee’s Failure to Benchmark Transactions:
The CIT(A) ignored the TPO’s contention that the assessee failed to benchmark transactions with AE as per law. The Tribunal upheld CIT(A)’s decision, consistent with earlier rulings that favored the assessee’s approach.

11. Allowing Aggregation of Transactions:
The CIT(A) allowed aggregation of transactions, contrary to the TPO’s approach. The Tribunal supported this, finding no reason to deviate from earlier decisions that permitted such aggregation.

12. Deletion of Addition of ?11,17,079/-:
The CIT(A) deleted the addition for excess depreciation claimed, referencing ITAT’s decision for AY 2007-08, which held that reimbursement of capital expenses should not reduce the cost of assets. The Tribunal upheld this, finding no distinguishing features in the current year’s facts.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, upholding CIT(A)’s decisions across all issues, based on consistent application of ITAT’s earlier rulings and lack of distinguishing features in the current year’s facts.

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